Consider the following two, completely separate economies. The expected return and volatility of all stocks in both economies are the same.

In the first economy, all stocks move together-in good times all prices rise together and in bad times, they all fall together.

In the second economy, stock returns are independent-one stock increasing in price has no effect on the prices of other stocks.

Assuming you are risk-averse and you could choose one of the two economies in which to invest, which one would you choose? Explain.